467 Mass. 525 | Mass. | 2014
This case is, like many, factually intense. On appeal, however, the primary legal issues raised concern the duties fellow shareholders and directors of close corporations owe to each other in a context where contractual agreements exist defining in part their relationship; also raised are questions about damages.
For the reasons discussed hereafter, we affirm the jury verdict in favor of Selmark Associates, Inc. (Selmark), and Marathon Sales, Ltd. (Marathon), on their breach of fiduciary duty claim against Evan Ehrlich. We also affirm the verdict in favor of Ehrlich on his breach of fiduciary duty counterclaim against Selmark and David Elofson. We conclude that, as the jury found,
1. -Background. What follows is a summary of the factual background of the case, taken from the evidence at trial. We reserve for later discussion additional facts relevant to the issues raised on appeal.
Selmark and Marathon are both closely held Massachusetts corporations that operate as what the sales industry calls manufacturer’s representative companies. Both provide outsourced sales support to compánies manufacturing electronic components that lack their own sales staff; these manufacturers are Marathon’s and Selmark’s customers or “principals.” Andrea Terenzi established Marathon in 1980 and remained its owner and sole shareholder until the transactions at issue in this case. In 1997, Terenzi hired Ehrlich as a salesperson for Marathon and the two had a verbal agreement under which, if all went well, Ehrlich would have an option to become an owner and manager of Marathon. Ehrlich proved to be a high-performing salesperson and maintained a good relationship with Terenzi. As Terenzi’s retirement approached, Terenzi was looking for a successor and a way to sell his company, and wanted Ehrlich to have an ownership interest in it. This led to nearly two years of negotiations among Terenzi, Ehrlich, and Selmark for the sale of Marathon. At the time, Selmark was owned by Elofson and Clifton Snuffer, both former Selmark sales managers who purchased the business from Elofson’s father on his retirement in 1993.
On or about September 14, 2001, Ehrlich entered into a series of written agreements (collectively, the agreements) providing for the gradual sale of Marathon by Terenzi to Selmark and Ehrlich. The agreements comprise four contracts referred to as
a. The agreements. We set forth the essential terms of each agreement:
i. Purchase agreement. The purchase agreement detailed the terms of sale of Marathon to Selmark and Ehrlich. It provided for the gradual acquisition of Marathon stock by the two purchasers through monthly payments to Terenzi, pursuant to two promissory notes.
ii. Employment agreement. The employment agreement was attached to the purchase agreement, and was between Ehrlich and Marathon. The agreement provided for an initial fifteen-month term, until December 31, 2002, with extension possible on the written agreement of the parties. Under the employment agreement’s terms, Ehrlich became the vice-president of Marathon and potentially a director, and could only be terminated for cause. If the agreement was not extended, at the conclusion of the initial contract term, the agreement would terminate and Ehrlich would be required to resign as an officer and director of Marathon.
iii. Conversion agreement. Under the conversion agreement, Ehrlich had the option, once he and Selmark fully paid off Ter-enzi for the purchase of Marathon, to convert what would then be Ehrlich’s forty-nine per cent interest in Marathon into a twelve and one-half per cent ownership interest in Selmark.
The conversion agreement also required that, upon conversion, Selmark offer Ehrlich an employment agreement that would provide “for compensation, bonuses, expense payments, and benefits consistent with his percentage ownership of [Selmark].”
iv. Stock agreement. The stock agreement, attached to the conversion agreement, would become operative if and when Ehrlich paid Terenzi his full share of the Marathon purchase price pursuant to the terms of the purchase agreement, and
b. Subsequent events. After the agreements were executed, Marathon and Selmark remained separate entities, but presented themselves as Selmark to the outside world. Marathon moved into the Selmark office space, but maintained separate bank accounts and tax returns. The two companies used each other’s sales forces to sell one another’s product lines, and they did not compete with each other. Ehrlich’s business card identified him as vice-president of Selmark even though in fact he was an employee and vice-president of Marathon pursuant to the employment agreement.
Ehrlich’s employment agreement expired by its terms on
In July of 2007, Ehrlich notified Elofson that he intended to accelerate his final payments to Terenzi and complete the payment due on his forty-nine percent share of Marathon stock by December, 2007. According to Elofson, Ehrlich’s announcement prompted Elofson to contemplate the future of Selmark, and then to conclude that he did not see Ehrlich as a successor or want him involved in the future of the business.
After his termination, Ehrlich received approximately $25,000 in severance from Selmark, but did not cash in his Marathon stock under the terms offered in the termination letter. He remained a minority shareholder of Marathon, but had no access to, or involvement in, the business workings of the company.
In November, 2007, Ehrlich took a job as a salesperson with Tiger Electronics (Tiger), a competing manufacturer’s representative company.
Following his termination, Ehrlich did not believe that Marathon had insufficient funds to make its remaining payments to Terenzi.
On June 1, 2009, Ehrlich sent Elofson notice of his intention to exercise his conversion rights pursuant to the conversion agreement, and requested issuance of his twelve and one-half per cent stock interest in Selmark. Through counsel, Selmark notified him that he was not entitled to convert because Selmark had “cured [Ehrlich’s] default of his obligations” pursuant to the purchase agreement. Selmark then claimed for itself the portion of stock attributable to the amount on which Ehrlich allegedly had defaulted, and Ehrlich never acquired the forty-nine per cent interest in Marathon necessary to exercise his conversion rights.
c. Procedural history. On April 22, 2008, Selmark and Marathon filed a complaint, alleging that by soliciting and acquiring Marathon principals for Tiger, Ehrlich committed a breach of his fiduciary duties to Marathon.
After the verdict, the trial judge allowed Ehrlich’s motion for injunctive relief to preserve the assets of Selmark and Marathon pending appeal. Ehrlich later moved to amend his motion to include in the preservation order Elofson’s corporate and personal assets; the judge denied the motion to amend.
Judgment entered on October 13, 2011. Ehrlich subsequently filed a motion for judgment notwithstanding the verdict (judgment n.o.v.) and the Selmark parties filed a joint motion for judgment n.o.v., and a motion to amend judgment by remittitur or, in the alternative, a motion for new trial. After rehearing, both parties’ posttrial motions were denied on January 4, 2012.
2. Discussion, a. The Selmark parties’ appeal. On appeal, the Selmark parties focus first on Ehrlich’s successful counterclaims for breach of fiduciary duty and breach of contract, raising issues that concern the appropriate legal principles governing the merits of these claims as well as the damages awarded for each; they also argue that the trial judge’s jury instructions on these claims were fatally flawed by omissions as well as erroneous statements of the law, errors that were compounded by use of a defective special verdict questionnaire. Finally, they challenge the judgment for Ehrlich on his G. L. c. 93A claim, arguing that it must be reversed because c. 93A is inapplicable in this case. We consider these issues separately, beginning with the breach of fiduciary duty claim.
Before doing so, however, it is important to review the apparent basis of the jury’s findings on Ehrlich’s breach of fiduciary duty and breach of contract claims. Ehrlich asserted both these claims against all three of the Selmark parties: Marathon, Sel-mark, and Elofson. The jury found only Selmark and Elofson liable for both breach of fiduciary duty and breach of contract. However, the jury were not asked to identify the specific basis or bases of their breach of fiduciary duty findings, or to specify which contract or contracts they found to have been breached.
The jury found Selmark and Elofson to have committed a breach of their fiduciary duties to Ehrlich in relation to the termination of his employment by Marathon. We have long recognized that, as in a partnership, “the relationship among the stockholders [of a close corporation] must be one of trust, confidence and absolute loyalty if the enterprise is to succeed.” Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass. 578, 587 (1975). This is particularly so given that the very structure of the close corporation may provide “an opportunity for the majority stockholders to oppress or disadvantage minority stockholders [through] a variety of oppressive devices, termed ‘freeze-outs.’ ” Pointer v. Castellani, 455 Mass. 537, 550 (2009), quoting Donahue, supra at 588. Freeze-outs can occur when a minority shareholder is deprived of employment, Pointer, supra, citing Donahue, supra at 589, or, more generally, “when the reasonable expectations of a shareholder are frustrated.” Id., citing Bodio v. Ellis, 401 Mass. 1, 10 (1987).
Selmark and Elofson do not dispute these principles. Rather, they contend that fiduciary duties of good faith and loyalty are inapplicable where, as here, the parties have negotiated a series of agreements intended to govern the terms of their relationship. Relying on Blank v. Chelmsford Ob/Gyn, P.C., 420 Mass. 404 (1995), and its progeny, they argue that courts (and juries) may not consider claims for breach of fiduciary duty when the rights of the parties are determined by contracts that they have negotiated. See Chokel v. Genzyme Corp., 449 Mass. 272, 278 (2007) (“When rights of stockholders arise under a contract ... the obligations of the parties are determined by reference to contract law, and not by the fiduciary principles that would otherwise govern”). Given the written agreements among the parties, the argument goes, as a matter of law Ehrlich cannot maintain his fiduciary duty claim, and the trial judge erred in denying Selmark’s and Elofson’s motion for judgment n.o.v. on this claim.
In Blank, 420 Mass. at 404-408, we considered the rights of a plaintiff shareholder in a close corporation who was terminated, and his stock repurchased, pursuant to the terms of an employment agreement and stock agreement that expressly permitted him to be terminated without cause on six months’ notice and required him thereafter to sell his stock back to the corporation. Addressing whether, notwithstanding the terms of the parties’ employment and stock agreements, the plaintiff shareholder’s termination was still governed by fiduciary duty principles, we concluded that “questions of good faith and loyalty with respect to rights on termination or stock purchase do not arise when all the stockholders in advance enter into agreements concerning termination of employment and for the purchase of stock.” Id. at 408. We clarified subsequently that “[w]hen a director’s contested action falls entirely within the scope of a contract between the director and the shareholders, it is not subject to question under fiduciary duty principles.” Chokel, 449 Mass. at 278, citing Blank, supra at 408. Thus, when the challenged conduct at issue in a case is clearly contemplated by the terms of the parties’ written agreements, we have declined to find liability for breach of fiduciary duty. See, e.g., Merriam v. Demoulas Super Mkts., Inc., 464 Mass. 721, 727-728 (2013); Chokel, supra at 278. However, we have been equally clear that “the presence of a contract will not always supplant a shareholder’s fiduciary duty.” Merriam, supra at 727 n.14. When the contract does not entirely govern the other shareholders’ or directors’ actions challenged by the plaintiff, a claim for breach
Given this framework, neither theory presented by Selmark places this case within the ambit of Blank. As to the employment agreement, Ehrlich contends, and we agree, that because there was no contract among the parties governing the terms of Ehrlich’s employment with Marathon after 2002, Blank has no application. Selmark’s argument that the employment agreement still had force in 2007, in the sense that the agreement’s expiration provision implicitly allowed for Ehrlich’s termination without cause after the agreement’s end date of December 31, 2002, has no merit. Ehrlich was an employee at will after that date due to the fact that the employment agreement was no longer in effect, i.e., in the absence of the employment agreement, not because of it. Accordingly, Selmark and Elofson cannot rely on Blank to argue that the no longer operative employment agreement displaced fiduciary duties owed by Selmark (and derivatively Elofson) to Ehrlich as a fellow shareholder of Marathon.
Selmark’s alternative contention, that even if the employment agreement had expired, Blank nonetheless applies because the parties’ remaining three agreements were still in effect in 2007 and independently defined Selmark’s and Elofson’s obligations to Ehrlich, fails as well. Our cases are clear that the existence of a contract does not “completely relieve[]” shareholders of their fiduciary obligations, King, 418 Mass. at 586, and that a claim for breach of fiduciary duty may lie when the contract does not “entirely govern” the rights and duties of the parties. Merriam, 464 Mass. at 727 n.14. This case presents precisely such an instance. There are, it is true, brief references to the 2001 employment agreement between Ehrlich and Marathon in two of these other agreements,
Because Blank is inapplicable, and general fiduciary principles apply, Selmark’s argument that the breach, of fiduciary duty claim fails as a matter of law must itself fail, and the trial judge did not err in denying Selmark’s motion for judgment n.o.v. “Our standard for reviewing a motion for judgment n.o.v. is ‘whether, “anywhere in the evidence, from whatever source derived, any combination of circumstances could be found from which a reasonable inference could be drawn in favor of the [other party].” ’ ” Bank v. Thermo Elemental Inc., 451 Mass. 638, 651 (2008), quoting Masingill v. EMC Corp., 449 Mass. 532, 543 (2007). See O’Brien v. Pearson, 449 Mass. 377, 383 (2007), quoting Turnpike Motors, Inc. v. Newbury Group, Inc., 413 Mass. 119, 121 (1992). Here, the record contains ample evidence from which the jury could infer that, in terminating Ehrlich, Elofson and Selmark violated the duty of utmost good faith and loyalty owed to Ehrlich as a minority Marathon shareholder. Donahue, 367 Mass. at 587. Ehrlich signed the agreements and worked for six years at Marathon, giving up Marathon profits to which he would have been entitled in order to enable Marathon to make the necessary payments to Terenzi. Soon after Ehrlich indicated that he intended to accelerate his share of the payments to Terenzi, and just before achieving the opportunity to convert his Marathon shares to Selmark stock, Elofson terminated him without warning or reasonable explanation. There was no evidence of poor performance — Ehrlich was consistently the second highest producer of commission revenue in the company — or of an inability to get along with others. Further, given that the agreements by their terms did not contemplate that Ehrlich would ever have an opportunity to
Damages. Ehrlich was awarded $221,408 in damages for breach of fiduciary duty committed by Selmark and Elofson. On appeal, the Selmark parties purport to contest this award, but raise no specific challenge to the amount of the award or to how the jury arrived at it. Appellate briefs must “contain the contentions of the appellant with respect to the issues presented, and the reasons therefor, with citations to the authorities, statutes and parts of the record relied on.” Mass. R. A. P. 16 (a) (4), as amended, 367 Mass. 921 (1975). Where, as here, an argument merely asserts error without sufficient legal argument, this standard is not met. Kellogg v. Board of Registration in Med., 461 Mass. 1001, 1003 (2011). Accordingly, Selmark’s argument concerning the $221,408 award for breach of fiduciary duty is waived. See, e.g., Maillet v. ATF-Davidson Co., 407 Mass. 185, 194 (1990) (objection to reasonableness of attorney’s fee awarded waived when argument in brief only addressed costs).
ii. Breach of contract. As discussed, the jury concluded that Selmark and Elofson committed a breach of the conversion agreement. The essence of these two parties’ argument on appeal, as at trial, is that they could not have committed a breach because Ehrlich never acquired the necessary rights under that
Because the trial judge denied the Selmark parties’ motion for judgment n.o.v. on this claim, we look to see whether there was any evidence to support at least a reasonable inference of a breach. See O’Brien, 449 Mass, at 383, quoting Turnpike Motors, Inc., 413 Mass, at 121. Here, ample evidence was presented from which the jury could have found that Ehrlich acquired the stock required to permit conversion, and that Selmark’s refusal to allow him to do so was a breach of the conversion agreement.
Section 5 of the purchase agreement delineates precisely the steps that Terenzi was required to take to declare Ehrlich in default, thereby triggering Selmark’s right to cure.
Damages. We turn to the Selmark parties’ challenge to the award of damages for breach of contract; the total award was for $1,537,163. The Selmark parties’ basic claim is that the award lacks an adequate evidentiary foundation.
To provide context for this claim, it is useful to review the terms of the conversion agreement. The agreement provides that upon Ehrlich’s acquiring forty-nine percent of the Marathon stock, he would be entitled to convert that interest into a twelve and one-half percent ownership interest in Selmark; in addition, Selmark would be required to offer Ehrlich an employment agreement — although no terms of employment are described in the conversion agreement itself. With these provisions in mind and considering as well the damages calculations presented at trial by expert witnesses, the jury’s award could have been the sum of three figures, as follows. First, as the parties agree, the award likely includes some measure of lost income, representing the value of Ehrlich’s lost opportunity for employment by Selmark;
The first difficulty just mentioned is self-explanatory; we focus on the second. The fundamental premise of “contract damages is that the aggrieved party should be put in as good a position as if the other party had fully performed.” Quinn Bros. v. Wecker, 414 Mass. 815, 817 (1993), quoting Laurin v. De-Carolis Constr. Co., 372 Mass. 688, 691 (1977). Accordingly, Ehrlich’s contract damages should not exceed the value of the benefit of which he was deprived. See generally Salvas v. Wal-Mart Stores, Inc., 452 Mass. 337, 374 (2008). Here, if we have discerned correctly the basis of the jury’s award, the total includes individual components that are reasonable when considered separately but, when combined, are contrary to the language of the agreements and impermissibly duplicative, giving Ehrlich more than the benefit of his bargain. See generally id. In particular, there is at least one fundamental flaw in the jury’s
In sum, we conclude that the jury’s award of damages for breach of contract must be reversed and the case remanded for a new trial on these damages. To assist consideration of the damages issue on remand, we briefly address the Selmark parties’ remaining arguments.
Finally, we address the Selmark parties’ argument that “Gordon’s calculations of future wages were predicated upon legally untenable assumptions that Ehrlich would receive a compensation package providing him with 27.3% of the funds available for distribution to the owners.” They claim that these assumptions contradict paragraph 4 in the conversion agreement insofar as the paragraph specified that Ehrlich’s offer of an employment agreement from Selmark was to “provide[] for compensation, bonuses, expense payments, and benefits consistent with his percentage ownership in [Selmark]” (emphasis added); their view is that this paragraph limits Ehrlich’s total compensation to no more than twelve and one-half per cent of the funds available for distribution. As a general proposition, there seems to be no inherent relationship between the percentage of a person’s stock or ownership interest in a corporation and the terms of his employment by that corporation, such that an expert’s opinion concerning loss of future income related solely to the employment must take stock ownership into account. The question then is whether, and if so, how, this language in paragraph 4 of the conversion agreement alters the general proposition in this case such that it undermines the basis of Gordon’s expert opinion testimony on Ehrlich’s loss of future income. We are not able to answer the question on the present record. While Gordon does not appear to have referenced the quoted language in paragraph 4 in his trial testimony, we cannot say whether he considered it. More to the point, the meaning of the quoted language is not self-evident, and no evidence was offered concerning the intent of the parties in including this language in the conversion agreement. On remand, it will be open to both the Selmark parties and Ehrlich to explore these questions.
iii. Jury instructions. The Selmark parties raise three arguments concerning the trial judge’s jury instructions and special verdict questionnaire. They claim that the judge’s failure to inform the jury that fiduciary duties can be displaced by contract under Blank, 420 Mass, at 404, and its progeny was reversible error, and specifically take issue with the exclusion of their
With respect to the argument that an instruction on Blank was improperly excluded, there was no reversible error. “A judge should instruct the jury fairly, clearly, adequately, and correctly concerning principles that ought to guide and control their action.” Mahoney v. Gooch, 246 Mass. 567, 571 (1923). An appellate court considers the adequacy of the instructions as a whole, not by fragments. See Lipchitz v. Raytheon Co., 434 Mass. 493, 507 (2001); Comey v. Hill, 387 Mass. 11, 17 (1982). Here, the instructions adequately and correctly covered the applicable legal principles for breach of contract and breach of fiduciary duty, albeit with a broad brush. Mahoney, supra. The judge might have included an instruction that referenced generally the principles discussed in Blank, but “[e]very possible correct statement of law need not ... be included in jury instructions if the instructions as given are correct and touch on the fundamental elements of the claim.” Conners v. Northeast Hosp. Corp., 439 Mass. 469, 481 (2003), quoting Kobayashi v. Orion Ventures, Inc., 42 Mass. App. Ct. 492, 503 (1997). Moreover, it bears remembering that in this case, the Selmark parties consistently have taken the position that, by 2007, the employment agreement had expired and Ehrlich was an employee at will. Although Selmark contends that even though the employ
The Selmark parties’ second claim is that six “legal questions” at the “core of the case were not ruled on as matters of law, but were submitted to the jury for resolution — and submitted without instruction on the law they were to apply.” The claim fails: the jury were not forced to decide legal questions without guidance from the trial judge. Of the six “legal questions” the Selmark parties mention, four raised factual rather than legal issues, and as such were appropriate for the jury to decide,
Finally, we address the argument that the special verdict questions the jury were asked to answer “conflat[ed] different theories of recovery,” leading to jury confusion and warranting a new trial. The Selmark parties objected to the judge’s removal of checkboxes on the special verdict questionnaire that would have specified which type of breach of contract — breach of written contract, breach of implied-in-fact contract, or breach of contract by estoppel — the jury relied on in deciding the breach of contract claim. As a result, they claim, it is now unclear
The Selmark parties are attempting to create ambiguity where none exists. As discussed, the evidence supports the conclusion that the jury found a breach of the written conversion agreement, and the parties do not dispute this. Ehrlich’s counsel has acknowledged that there was “no real implied contract argument made.” Furthermore, the “nature, scope, and form of special questions submitted to a jury pursuant to Mass. R. Civ. P. 49 (a)[, 365 Mass. 812 (1974),] ... are matters within the discretion of the trial judge.” Draghetti v. Chmielewski, 416 Mass. 808, 818 (1994), quoting Solimene v. B. Grauel & Co., KG, 399 Mass. 790, 802 (1987). Our review of those questions is considered “in light of the instructions given by the judge.” Draghetti, supra. It clearly would have been appropriate and indeed preferable for the judge to have asked the jury to identify the particular contract they found to have been breached. But given that the jury were properly instructed on all three theories of contract recovery, we cannot conclude that the special questions created juror confusion.
iv. Chapter 93A. The jury found that all three Selmark parties engaged in unfair or deceptive acts or practices in violation of G. L. c. 93A.
“It is well established that disputes between parties in the same venture do not fall within the scope of G. L. c. 93A, § 11.” Szalla v. Locke, 421 Mass. 448, 451 (1995). To bring a claim under the statute, there must be “a dual inquiry whether there was a commercial transaction between a person engaged in trade or commerce and another person engaged in trade or commerce, such that they were acting in a ‘business context.’ ”
Here, the evidence shows that the parties’ disputes all arose out of their connections to and interests in Marathon: Ehrlich’s counterclaims were based on the consequences of the alleged wrongful termination of his employment with Marathon by his fellow Marathon shareholder, Selmark, and Selmark’s then sole shareholder, Elofson, and the breach of a stock conversion agreement relating to Marathon stock; the central theme of his claims was that the Selmark parties were acting in violation of the fiduciary duties they owed Ehrlich as a minority shareholder of Marathon. Because c. 93A does not apply to employment and shareholder relationships, it has no application here.
Ehrlich’s arguments do not persuade us otherwise. He first contends that, because Selmark and Marathon believe they are separate entities,
The judgment in favor of Ehrlich on his claim under c. 93A must be reversed.
b. Ehrlich’s cross-appeal, i. Breach of fiduciary duty. At trial, Marathon and Selmark argued that Ehrlich violated his fiduciary duties of good faith and loyalty to Marathon when he solicited Marathon’s principals for Tiger. The jury agreed, and awarded $240,000 in damages.
Our cases are clear that shareholders in close corporations owe fiduciary duties not only to one another, but to the corporation as well. See, e.g., Chambers v. Gold Medal Bakery, Inc., 464 Mass. 383, 394 (2013); Donahue v. Rodd Electrotype Co. of New England, Inc., 367 Mass, at 593. At issue here is whether those fiduciary duties to the corporation continue once a shareholder has been “frozen out,” or wrongfully terminated, by that corporation.
Relying on a decision of the Supreme Court of Wyoming, Ehrlich urges us to find, as a matter of law, that his termination from Marathon extinguished his fiduciary duties as a shareholder, allowing him to compete with the company. See J Bar H, Inc. v. Johnson, 822 P.2d 849, 861 (Wyo. 1991) (holding that “where a shareholder/director/employee of a close corporation has been wrongfully terminated from employment with the corporation and has been unjustly prevented from fulfilling her function as a director or officer, she can no longer be considered to act in a fiduciary capacity for the corporation” and, thus, is under no obligation not to compete).
ii. Jury award for breach of contract. Ehrlich contends that the trial judge erred in failing to award multiple damages on his breach of contract claim. The crux of his argument is that, because the judge awarded double damages on his claim under c. 93A for unfair or deceptive practices, he is similarly entitled to multiple damages for breach of contract because they arise out of the “same transaction and occurrence” as his c. 93A claim. G. L. c. 93A, § 11 (“For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence”). The argument appears to stand c. 93A on its head, but in any event, given our conclusion that Ehrlich is not entitled to recover on his c. 93A claim, he no longer has a foundation upon which to rest his argument for multiple contract damages.
iii. Injunctive relief. Finally, Ehrlich argues that the trial court erred in dealining to expand the scope of posttrial injunctive relief to freeze Elofson’s assets and allow Ehrlich to periodically monitor those assets. The requested relief is necessary, he claims, to protect his awards of damages and assure that assets are available to satisfy the judgment. Despite Ehrlich’s desires, “it was a matter of discretion [for the trial judge] to refuse to grant an injunction.” Zottu v. Electronic Heating Corp., 334 Mass. 442, 445 (1956). Here, we see no indication that the trial judge abused his discretion, particularly in light of the fact that he granted Ehrlich’s motion for injunctive relief to freeze Sel-mark’s and Marathon’s corporate assets. Furthermore, given our determination that the largest award Ehrlich received must be reversed and remanded for a new trial, the question whether the trial judge should have provided additional posttrial relief to Ehrlich may be moot at this point.
So ordered.
At the time the agreements were negotiated in the two-year period before September, 2001, David Elofson owned fifty-one per cent of Selmark Associates, Inc. (Selmark), and Clifton Snuffer owned forty-nine per cent. After Snuffer’s retirement in 2005, Elofson became sole owner and shareholder of Selmark.
Relevant provisions are considered in greater detail in our discussion of the issues, infra.
At the time this litigation began, the first note, note A, had been paid in full and the second, in part.
The purchase agreement also stated that Terenzi would remain an employee of Marathon Sales, Ltd. (Marathon), until 2003.
The parties agree that Marathon paid Terenzi from profits that otherwise would have flowed to its owners in the form of bonuses. Ehrlich estimated that, from 2001 to 2007, he forwent approximately $360,000 in profits and bonuses that went toward his ownership interest in Marathon.
The conversion rate was calculated based on the fact that because Selmark was four times the size of Marathon, Ehrlich’s forty-nine per cent interest in Marathon equaled approximately twelve and one-half per cent of Selmark.
The conversion agreement also states, however, that the conversion agreement itself does not “constitute an employment agreement between Ehrlich and Selmark.”
These conditions included bankruptcy, long-term disability, death, breach of the employment or conversion agreements, and “[t]he termination of [Ehrlich’s] employment with the Company in accordance with the Employment Agreement by and between the Company and [Ehrlich] dated [blank date], 2001.” The stock agreement defines the term “Company” to mean Selmark, but no employment agreement between Selmark and Ehrlich — dated in 2001 or at any other time — appears to exist.
The stock agreement defines the “stock purchase value” as “twelve and one half percent (12 ½ %) of the average gross annual commission revenue of [Selmark] for the previous thirty-six (36) months, plus forty-nine percent (49%) of the Working Capital ... [as defined in the purchase agreement] of Marathon . . . as of the Conversion Date ... [as defined in the conversion agreement].”
Elofson acknowledged at trial that he was never contractually obligated to make Ehrlich a successor or to grant Ehrlich control of Selmark. If Ehrlich had paid Terenzi in full and then exercised his right to convert his Marathon stock, Ehrlich would have acquired only a twelve and one-half per cent ownership interest in Selmark and an offer of employment, which carried no succession rights.
On this point, the termination letter stated:
“The net effect to you of this buy-out offer is that you will receive the same purchase price for your Marathon stock as you would be eligible to receive for your Selmark stock, had you exercised your conversion rights (when eligible to do so). This ‘short-cut’ mechanism allows you to achieve similar sales proceeds, without the necessity of going through the conversion process.”
Attached to the letter was a schedule of remaining payments due to Terenzi, indicating that Ehrlich was responsible for monthly payments to Terenzi until April, 2008, totaling $25,483.62.
Ehrlich’s salary at Tiger Electronics (Tiger) was $70,000, plus sixty per cent of any commissions exceeding $70,000. At trial, the parties stipulated that Ehrlich’s total annual compensation at Marathon for 2001 and 2004 to 2006 was the following: $92,700 in 2001; $236,100 in 2004; $240,200 in 2005; and $202,200 in 2006. The stipulation did not include compensation figures for 2002 and 2003.
As of the date of trial, Ehrlich remained employed by Tiger.
At trial, Ehrlich argued that although the companies he contacted were Marathon principals in the sense that commissions went into Marathon’s account, they were technically Selmark principals, because each company’s contract was with Selmark.
Elofson estimated that the loss of PKG cost Marathon $225,000 in total lost commissions, eighty per cent of which would have been profit.
At trial, the parties vigorously disputed whether Marathon had sufficient funds to pay Terenzi and presented voluminous financial documents in support of their arguments. Given our resolution of the issues raised on appeal, discussed infra, we do not address this issue.
Terenzi testified that he felt the messages via electronic mail provided more than sufficient notice to Ehrlich and Selmark of their obligation, and that, as friends, they would “hold to their word” and pay.
The complaint included a claim that Ehrlich violated the noncompete provision of the employment agreement, but the plaintiffs did not pursue this claim at trial.
On July 15, 2008, the judge allowed Ehrlich’s motion to add Elofson as a defendant in counterclaim.
Ehrlich’s counterclaims alleged: (1) breach of written contract; (2) breach
The jury were not asked to identify the specific contract or agreement that they determined was the subject of the breach, see infra.
As to the remaining counterclaims, not relevant to the issues raised on appeal, the jury determined: (1) Selmark and Elofson (but not Marathon) negligently or intentionally inflicted emotional distress on Ehrlich, but awarded no damages; (2) the Selmark parties were unjustly enriched at the expense of Ehrlich, and awarded $34,200 in damages; and (3) the Selmark parties were not liable on Ehrlich’s claims for violation of the Wage Act, fraud, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing.
It would have been preferable for the trial judge to have asked the jury to specify the particular bases of their findings.
Specifically, the purchase agreement notes, and incorporates by reference, Ehrlich’s 2001 employment agreement with Marathon, and states that, other than that agreement and Terenzi’s employment agreement, Marathon “has no employment contracts, consulting agreements, plans or contracts providing for [various types of compensation].’’ The stock agreement provides no additional employment rights, but references in ambiguous fashion a prior agreement that arguably is the employment agreement.
At trial, Elofson testified that he never warned Ehrlich about his concerns, hired a consultant, or took any other steps to resolve his issues with Ehrlich. Additionally, a business management consultant, testifying as an expert witness, opined that it was unusual for a minority shareholder to be terminated without prior feedback. For reasons we discuss infra, the issue whether Elofson was obliged to consider less harmful alternatives to deal with Ehrlich’s alleged employment deficiencies than firing him was properly raised in this case.
Section 5(a) of the purchase agreement states in relevant part:
“The parties hereto agree to review the monthly cash flow of [Marathon] for the purpose of determining if sufficient cash flow exists to service Note A and Note B, on a semi annual basis. Such review shall be conducted on March 1st and September 1st of each year. In the event [Marathon] has not made sufficient monthly payments to Terenzi in accordance with [the notes], Terenzi shall notify each of the Buyers in writing of the Monthly Shortfall for the previous six (6) month period in accordance with the notice provisions of Section 24 below (the ‘Shortfall Notice’). . . .”
Section 5(c) of the purchase agreement requires that, if payment is not made within the allotted time frame after receipt of the shortfall notice, a default may be declared. On default, “Terenzi shall notify the defaulting Buyer, in writing, of such default (the ‘Default Notice’).”
Section 24 of the purchase agreement, setting out the provisions referenced in section 5(a), specifies:
“Any notices required hereunder shall be deemed effective if in writing, delivered in hand or two (2) business days after mailing postage prepaid by certified mail, return receipt requested, to the party entitled to notice at the addresses as follows. . . .”
The Selmark parties argue that any damages for loss of income cannot flow from a breach of the employment agreement between Marathon and Ehrlich, because the jury found Marathon not liable on the breach of contract claim. We agree, and limit our analysis of damages for lost income to Ehrlich’s potential employment rights under the conversion agreement.
At trial, each party presented expert testimony presenting their calculations of Ehrlich’s lost income. Ehrlich’s expert, Howard Gordon, estimated that the cumulative total of the present value of Ehrlich’s lost income, for six years, was $819,649. Mark Preziosi, expert for the Selmark parties, calculated $258,000 in lost income for the same time period.
The “Stock Purchase Value” is defined in the stock agreement as “twelve and one half percent... of the average annual gross commission revenue of [Marathon] for the previous thirty-six (36) months, plus forty-nine percent (49%) of the Working Capital ... of Marathon ... as of the Conversion Date . . . .”
Gordon valued Ehrlich’s interest in Selmark at $343,105, and Preziosi valued it at $193,579.
They total $1,547,754, exceeding the jury award by $10,592.
AdditionaIly, the Selmark parties argue that the conversion agreement cannot reasonably be interpreted in a way that would guarantee Ehrlich future employment after he sold his Selmark stock back to the company at the premium price. We interpret this argument to mean that the jury theoretically could have awarded damages for either Ehrlich’s lost income, or his interest in Selmark based on the premium “call option purchase value,” but not both. Given our conclusion that the award of damages cannot stand, we do not reach this issue. But by not reaching it, we do not mean to suggest that Ehrlich is precluded from recovering damages for both lost income and the value of his stock should the jury find that both are necessary to equal the value of the benefit of which he was deprived. For example, assuming for argument that Ehrlich would not be entitled to receive the premium price for the stock simultaneously with recovery for lost income, he might still recover for lost income and the value of the stock calculated according to the agreement’s stock purchase value formula, without premium.
One of Selmark’s arguments concerns the actual calculation of the stock purchase value under the formula spelled out in the stock agreement. Although the basis for the parties’ respective calculations was vigorously disputed at trial, no substantive legal argument has been raised on appeal. Accordingly, we deem this issue waived. See Mass. R. A. P. 16 (a) (4), as amended, 367 Mass. 921 (1975); Kellogg v. Board of Registration in Med., 461 Mass. 1001, 1003 (2011).
In the context of unlawful termination in employment discrimination cases, this court has authorized consequential damages in the form of lost future earnings and benefits — “front pay” —■ that have been “proved with reasonable certainty as attributable to the employer’s misconduct.” Conway v. Electro Switch Corp., 402 Mass. 385, 386, 390 (1988). In that context, applying a number of evaluative factors, Massachusetts courts have upheld liberal front pay awards. See, e.g., Haddad v. Wal-Mart Stores, Inc. (No. 1), 455 Mass. 91, 102 (2009); Ventresco v. Liberty Mut. Ins. Co., 55 Mass. App. Ct. 201, 210 (2002); Handrahan v. Red Roof Inns, Inc., 48 Mass. App. Ct. 901, 902 (1999).
Ehrlich contends that the Selmark parties failed to preserve their objections to the judge’s jury charge based on Blank v. Chelmsford Ob/Gyn, P.C., 420 Mass. 404 (1995). The argument is meritless. Our rules require that, to claim error in the jury charge on appeal, an objection must first be made before the trial court judge. See Mass. R. Civ. P. 51 (b), 365 Mass. 816 (1974). This puts the judge on notice of the issue. Rotkiewicz v. Sadowsky, 431 Mass. 748, 751 (2000). While the rule may be satisfied in various ways, at a minimum, the “party objecting to the inclusion or exclusion of an instruction must. . . clearly bring the objection and the grounds for it to the attention of the judge.” Id. The record makes clear that the Selmark parties did so here, both in the charge conference and at trial. The objections were properly preserved.
As for the instruction on a “less harmful” course of action, its inclusion in the jury charge was proper regardless of whether an instruction on Blank was given. As discussed above, the jury were appropriately instructed on the applicable legal principles governing breach of fiduciary duty, and our law is clear that these principles include consideration whether the Selmark parties had a legitimate business purpose for termination and sought a “less harmful” course of action before doing so. O’Brien v. Pearson, 449 Mass. 377, 385 (2007). Accordingly, the judge did not err by including the instruction.
The four factual determinations for the jury concerned: (1) the applicability of the employment agreement after 2002; (2) whether to accept Gordon’s use of six years as the period over which to calculate lost income; (3) whether Ehrlich was entitled to damages for breach of the conversion agreement; and (4) whether Ehrlich acquired the necessary Marathon shares in order to exercise his conversion rights.
The legal issues considered and implicitly ruled on were (1) whether Blank principles applied; and (2) whether Elofson had a fiduciary duty to consider “less harmful” alternatives before terminating Ehrlich.
Ehrlich asserts a violation of G. L. c. 93A, § 2, which prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” G. L. c. 93A, § 11, provides his cause of action.
Notably, Ehrlich himself argued vigorously at trial, and on appeal, that, after the agreements were signed, Marathon and Selmark were essentially the same entity.
The jury awarded Ehrlich $221,408 for his G. L. c. 93A claim. The Selmark parties argue that, because Ehrlich received the same amount for his breach of fiduciary duty claim, the c. 93A damages are impermissibly duplicative and cannot stand. Because we have concluded that Ehrlich is not entitled to prevail on his G. L. c. 93A claim, we do not reach this issue.
Ehrlich claims that the trial court found he could be liable for “accepting employment in competition with Marathon.” However, because Marathon never pursued its initial claim against Ehrlich for accepting employment in violation of the noncompete provision of the employment agreement, the only issue that the jury were asked to decide was whether Ehrlich violated his
Ehrlich also cites two additional cases from other jurisdictions that we find to be factually distinguishable. See Rexford Rand Corp. v. Ancel, 58 F.3d 1215, 1220 (7th Cir. 1995); Voss Eng’g, Inc. v. Voss Indus., Inc., 481 N.E.2d 63 (Ill. App. 1985).